Texas building owners can have a Cost Segregation study conducted in order to accelerate depreciation during the earlier years of building ownership. This highly beneficial and widely accepted tax planning strategy can help to improve cash flow and defer taxes.
What is Cost Segregation in Texas?
A quality Cost Segregation study in Texas provides the documentation needed to defer substantial tax payments and greatly improve cash flow for companies that own real estate, multi-family housing, or tenant improvements. It is important to note that a cost segregation study does not create new deductions, but increases deductions in the early years of ownership. This front-loading of depreciation allows the taxpayer to take advantage of the time value of money by essentially serving as an interest-free loan (in that it front-loads the depreciation expense deduction a property would otherwise receive over 27.5 or 39 years).
Cost Segregation studies:
- Free up capital by accelerating the depreciation of personal property (§ 1245) and Qualified Improvement Property (QIP) as well as identifying various expensing opportunities associated with real estate
- The accelerated time frame is typically 5, 7, and 15 years rather than 27.5 or 39 years for the building (§ 1250)
Eligibility: Cost Segregation Studies for Texas Buildings
Texas buildings must meet the below eligibility requirements in order for a Cost Segregation study to be conducted:
How It Works
Texas Cost Segregation is a highly specialized field. Our expert team specializes in Texas buildings. Our Cost Segregation services are designed to exceed the IRS’ Cost Segregation Audit Techniques Guide’s Chapter 4-Principal Elements of a Quality Cost Segregation Study and Report.
Every basic Cost Segregation service includes the following:
Pre-qualification and Proposal
Every Source Advisors Texas study begins with our detailed pre-qualification process where the scope of work is defined and an estimate of benefits is generated. A flat fee quote is also presented with the estimate of benefits.
Request and Gather Data
Once the proposal is signed, our team will gather and analyze the information provided by you, such as: Construction drawings, invoices, change orders, depreciation schedules, etc.
Perform Site Visit and Study
From the invoices, we will identify any Texas property that might be specifically reclassified. In the likely event that the invoice detail is insufficient for the entire study, we will augment the invoices with detailed estimates derived from the construction drawings and site visit of the property. The results will be presented in a report that includes our methodology, relevant case law, definitions, property description, photos, and detailed schedules of our calculations.
Each study is reviewed a minimum of three times to ensure accuracy and quality.
Finalize the Report
A draft report is first issued and discussions are held with the taxpayer and their CPA to verify Source Advisors’ assumptions and findings. Once all questions have been addressed and adjustments made to the report, the final report is issued.
In the event that a study is reviewed in audit, Source Advisors’ highly experienced management team will provide audit support through appeals.
Benefits of Texas Cost Segregation Studies
A Cost Segregation study offers many benefits to those who own properties in the state of Texas. These benefits include:
- Increased Cash Flow: This can be generated in earlier years for your property.
- Present Value (PV): Present value (PV) of receiving depreciation expense deductions earlier rather than prorated over the life of the property.
- Opportunity to Reclaim Depreciation Deductions: A lookback study could correct your depreciation schedule going forward and generate a catch-up in missed depreciation (§ 481(a) adjustment).
Buildings In Texas That Can Benefit
A significant number of buildings in the state of Texas can benefit from Cost Segregation studies, including:
- Multi-Family Units
- Office Buildings
- Healthcare Facilities
- Distribution Centers
- Nursing Homes
- Sports Facilities
- Shopping Centers
- Grocery Stores
- Plus many more
Ready to increase your short-term cash flow?
When Should a Texas Cost Segregation Study Be Conducted?
A Texas Cost Segregation study should be conducted in either:
- The year you are purchasing the property
- The year you are remodeling the property or,
- The year you are constructing the property
If your property is outside of these aforementioned time periods, there is the possibility of a lookback study being conducted. If performed, this would correct your depreciation schedule going forward and generate a catch-up in missed depreciation (§ 481(a) adjustment).
Get help with your Cost Segregation study today.
Types of Cost Segregation Studies Available in Texas
The following Cost Segregation studies are available in Texas:
Cost Segregation Standard Study
Identifies §1245 Property (5, 7, & 15-year property (Typ.)). Includes: §1250 Qualified Leasehold Improvements, Qualified Retail Improvements, & Qualified Restaurant Improvements (15-year straight-line property), as well as §1250 Qualified Improvement Property (15-year straight-line property and bonus depreciation for §1250 interior improvements after 12/31/2017). Property is eligible for Routine Maintenance Safe Harbors, De Minimis. Also includes repairs associated with remodeling of existing buildings.
Enhanced Cost Segregation
Identifies units of property, building systems, and major components. Stop short of componentizing the building components. The level of detail within this study is highly customizable depending on the type of property as well as the property owner’s tax strategy and future Tangible Property Regulations needs.
This is a current year study only. Included is a detailed analysis of existing assets removed from service in the current tax year for the purpose of creating a disposition expense. It also includes both §1245 and §1250 assets.
Fixed Asset Review
Fixed asset reviews allow companies to correct past depreciation schedules and maximize depreciation expense deductions, achieving compliance and setting a precedent for managing depreciation schedules going forward. While fixed asset reviews are not a new concept, the opportunities afforded to taxpayers by the Tangible Property Regulations, PATH Act, Tax Cuts and Jobs Act, and CARES Act are highly complex and difficult to apply. A Source Advisors Fixed Asset Review is a detailed review of a taxpayer’s depreciation schedule that might include one or a combination of the following: Cost Segregation opportunities, Repair opportunities or risks, §1245 property improperly capitalized (or bonus incorrectly applied), Full Asset Dispositions, Partial Asset Dispositions, Opportunities to apply bonus depreciation, Opportunities to apply for qualified leasehold, restaurant and retail improvements for year placed in service prior to 2018Fixed asset reviews allow companies to correct past depreciation schedules and maximize depreciation expense deductions, achieving compliance and setting a precedent for managing depreciation schedules going forward. While fixed asset reviews are not a new concept, the opportunities afforded to taxpayers by the Tangible Property Regulations, PATH Act, Tax Cuts and Jobs Act, and CARES Act are highly complex and difficult to apply. A Source Advisors Fixed Asset Review is a detailed review of a taxpayer’s depreciation schedule that might include one or a combination of the following: Cost Segregation opportunities, Repair opportunities or risks, §1245 property improperly capitalized (or bonus incorrectly applied), Full Asset Dispositions, Partial Asset Dispositions, Opportunities to apply bonus depreciation, Opportunities to apply for qualified leasehold, restaurant and retail improvements for year placed in service prior to 2018, Qualified Improvement Property (QIP) for years placed in service after 2015, and Qualified Real Property (QRP) for years placed in service after 2017.
If your company owns or leases buildings, and you have built, installed, or retrofitted the property to be more energy efficient, you may be eligible to deduct all or part of the costs associated with the construction, installation, or retrofit.
The Energy-Efficient Building Tax Deduction, or §179D, provides a tax deduction of up to $1.80 per square foot for the installation of systems that reduce the total energy and power costs by 50 percent or more when compared to an ASHRAE standard reference building.
Energy-efficiency study for residential housing. A tax credit that offers developers a means to offset the costs associated with building energy-efficient single-family or multifamily properties. The credit provides a dollar-for-dollar offset against taxes owed or paid in the tax year in which the property is sold or leased.
Depending on the Texas Cost Segregation study you select, it typically takes 30 to 45 days to complete.
Texas Cost Segregation From the Experts: Source Advisors
Source Advisors is a specialized tax consulting firm providing Cost Segregation, R&D Tax Credit, Energy Efficiency (§179D), and LIFO inventory solutions for more than 37 years.
Our team of experienced CPAs, attorneys, engineers, technology experts, and Big Four professionals help companies save money and create cash flow to stimulate businesses and drive overall growth. We are experts in the legislation that governs these incentives and assist CPA firms and companies navigate the laws that continue to evolve and change.
The majority of Source Advisors’ team of architects, professional engineers, CPAs, MBAs, and LEED-certified professionals have spent between 10 and 20+ years managing Cost Segregation services. Each cost segregation specialist is highly trained in working with clients, gathering the necessary data, and analyzing each building to assure that we identify the maximum benefit that each taxpayer is entitled to receive.
Find out if you qualify for a Texas Cost Segregation study.
Cost Segregation with Source Advisors
Detailed Cost Segregation studies by the experts to maximize depreciation.